Part B Joey\'s Recording Studio rents studio time to musicians in 2-hour blocks.
ID: 2589247 • Letter: P
Question
Part B Joey's Recording Studio rents studio time to musicians in 2-hour blocks. Each session includes the use of the studio facilities, a digital recording of the performance, and a professional music producer/mixer. Anticipated annual volume is 1,000 sessions. The company has invested $2,000,000 in the studio and expects a return on investment (ROI) of 16.5%. Budgeted costs for the coming year as follows: Per Sessi Total S60 S400 S50 Direct materials Direct labor Variable overhead Fixed overhead Variable selling and administrative Fixed selling and administrative S850,000 S40 S800,000 Required: (a) Detrmine the total cost per session (b) Determine the desired ROI per session. (c) Calculate the mark-up percentage on the total cost per session (d) Calculate the target price per session.Explanation / Answer
a Per session Direct materials 60 Direct labor 400 Variable overhead 50 fixed overhead 850 Variable selling and administrative 40 Fixed selling and administrative 800 Total cost per session 2200 b Desired ROI per session=(2000000*16.5%)/1000= 330 c Mark up percentage = 330/2200= 15% d Target price = 2200+330 = $2530